Digital Media

File-sharing sites haven't had a great year, especially in court, but on Wednesday they received a smidgen of good news.

Ira Rothken, Isohunt's attorney

(Credit: Greg Sandoval/CNET News)

The Motion Picture Association of America asked a federal court to rule that Isohunt was liable for copyright violations committed by its users, but the judge in the case was unconvinced. In his order, U.S. District Court Judge Stephen Wilson said the studios had yet to prove that the Isohunt's users had broken U.S. law.

Lawyers for the MPAA, the trade group representing the six major Hollywood film studios, are trying to convince the judge that Isohunt encouraged and contributed to the infringing activity of users. Wilson gave the MPAA until Sept. 15 to file a brief that convinces him direct infringement at the site was committed by those in the U.S. Apparently, Wilson has questions about whether U.S. residents have pirated content using Isohunt.

"United States copyright laws do not reach acts of infringement that take place entirely abroad," Wilson, wrote in his order.

A spokeswoman for the MPAA did not immediately have a response.

The significance of the judge's order, at least from the point of view of Ira Rothken, Isohunt's attorney, is that MPAA's investigators have struggled to draw specific examples of infringement occurring in the U.S.

"Our view is that it would be difficult if not impossible," Rothken said, "to be able to trace any direct infringement to the users of the Isohunt's site in a manner that would hold Isohunt responsible for the infringing conduct. I think the judge's order will hopefully demonstrate to the court that Isohunt, besides lacking knowledge of direct infringement, can't possibly be held liable for users conduct, especially since any such conduct occurs after they leave the site."

Rothken is hoping to argue Isohunt's case before a jury, something that no other BitTorrent sites have managed to do.

"I believe there has not been a single case in U.S. law where there has been a decision on the merits of a Torrent search engine," Rothken said. "We're cautiously optimistic Judge Wilson will deny plaintiff's motion for summary judgment and ultimately there will be a trial on the merits."

Some of the cases that have gone against BitTorrent or file-sharing sites Sweden-based BitTorrent search engines, The Pirate Bay, was brought up on criminal misconduct charges and TorrentSpy's case was decided on a discovery sanction. Some of the issues in the Usenet.com case closely resemble Isohunt and TorrentSpy's, although the company is not a BitTorrent tracker or search engine.

Usenet.com is a company that enabled users to access the Usenet network and it too lost on a discovery sanction.

Most of these companies claim to do nothing more than help people locate files. One question often asked by readers is how is this different than what Google offers? One can find plenty of infringing content using the behemoth search engine.

"I believe the difference is that for one reason or another courts seem to place greater social importance on the Google search engine," Rothken said. "Courts also tend to frown on search engines created to find specific file types like .torrent files. And other than that there is no difference (Isohunt and Google)."

Update 7:27 a.m. PT: To include news that the Pirate Bay is back online and statement from site's operators.

The Pirate Bay--the BitTorrent tracker revered by file sharers across the globe and reviled by some of the world's biggest entertainment companies--is under siege like never before.

Many Pirate Bay fans believed that the site had met its end.

(Credit: Twitter)

Black Internet, the largest Internet service provider supplying bandwidth to the site, said Monday that a court in Sweden has threatened it with fines unless it discontinued service to Pirate Bay. The site's operators did find an alternative Web connection and got Pirate Bay up and running, though only for a brief period. As the outage dragged on, the site appeared to be in its death throes, prompting people to post messages to Twitter such as "Goodbye Pirate Bay, I'll miss you" and "Rest in peace."

But Pirate Bay's operators have refused to give in and have vowed to bring the file-sharing site back online. Which is what they did. On Tuesday morning The Pirate Bay had returned. The founders took the opportunity to issue a rallying cry to followers by updating one given by Winston Churchill (The entire statement is at the bottom).

"We have, ourselves, full confidence that if all do their duty, if nothing is neglected, and if the best arrangements are made, as they are being made, we shall prove ourselves once more able to defend our Internets," the operators said in a statement, "to ride out the storm of war, and to outlive the menace of tyranny, if necessary for years, if necessary alone."

Bravado aside, the truth is that The Pirate Bay's future is grim. By all appearances the BitTorrent tracker is on its way to joining Napster, Aimster, and TorrentSpy among once popular but now dead file-sharing services--all of them killed off by the entertainment industries.

In April, a Swedish court ruled that the co-founders were guilty of copyright violations, ordering them to pay $4 million and spend a year in jail. Then, following a proposed acquisition, The Pirate Bay was supposed to evolve into a pay site offering authorized film and music files. But that plan, too, seems to be buckling. Global Gaming Factory X, the software company supposedly trying to acquire The Pirate Bay, is facing its own legal challenges.

Even as fans bid farewell to The Pirate Bay, they've been chattering about which of the other BitTorrent trackers would best fill in for the site. The blog Gizmodo attracted a lot of attention by guiding readers to five Pirate Bay alternatives. In addition, a Pirate Bay user recently made a complete copy of the site and made it available for download at (where else?) The Pirate Bay. Regardless of whether the original Pirate Bay ever reopens, its legacy will endure on countless sites.

That's because--wherever one stands on the issues of file sharing or copyright--as long as films and music can be digitized and there is an open Internet, file sharing will exist. That reality is not lost to the Motion Picture Association of America. A spokeswoman for the film industry's trade group said: "We'll continue to evaluate and take appropriate actions against sites offering unauthorized copies of our member companies' works."

The question is whether any of these clones and wannabes can build the kind of cult following or wield the same influence as The Pirate Bay--they're unlikely to be "game changers," one music industry executive told me, and he's right.

The Pirate Bay's founders did more than just index torrents. To the 20 million who visited the site monthly, co-founders Peter Sunde Kolmisoppi, Fredrik Neij, and Gottfried Svartholm Warg are Scandinavian Robin Hoods, who freed the masses to enjoy music and movies and protected them from profiteering conglomerates.

To many artists, the three are little more than thieves who stole their work to line their own pockets.

A gamble for Global Gaming
As popular as The Pirate Bay is, however, users don't seem to have any problems walking away from the version proposed by Global Gaming, which would require a monthly paid subscription. The idea of paying for content is the antithesis of what The Pirate Bay stood for.

And that's just one of the many hurdles confronting Global Gaming, whose chances of actually acquiring the site appear slim.

In June, when Hans Pandeya, Global Gaming's CEO, announced the company's intention to buy The Pirate Bay, the plan was that the site would charge a monthly fee for content and users could lower their charges by contributing hard drive space and bandwidth to the service. If users contributed enough computer resources, then conceivably they could get free access to movies and music.

Click the image to see a roundup of recent Pirate Bay stories.

Global Gaming came under scrutiny last week after regulators in Sweden became concerned about the company's ability to pay for The Pirate Bay. The transaction was supposed to be completed by Thursday but Global Gaming apparently is in serious debt. Company managers have also been accused in the Swedish press of issuing misleading information to the public.

Even if the company is able to come up with the cash to pay for The Pirate Bay, just where it will find the money to pay for content in addition to a new technology platform that Pandeya promised back in June is still a mystery. In 2008, records show the company, which makes software and operates Internet cafes, generated the equivalent of $800,000.

What's remarkable about the brewing controversy is that the alarm bells didn't go off before now. Here's a quick synopsis of what stands in the way of an acquisition:

•  Peerialism, a Swedish peer-to-peer company that Global Gaming announced it would acquire at the same time as The Pirate Bay, hasn't begun work on building the site's technology platform. Johan Ljungberg, Peerialism's CEO, told CNET on Thursday that Pandeya signed a contract and asked Peerialism to start production work. Two months later, Ljungberg still hasn't started because Pandeya hasn't paid.

•  Aktietorget, a Swedish stock exchange, halted trading of Global Gaming's shares on Friday and won't allow it to resume until officials are convinced that the company has the money to complete the acquisition of The Pirate Bay. So far, Pandeya has not provided sufficient proof.

•  Aktietorget is also looking into statements issued by Pandeya. Since Wayne Rosso, the former president of Grokster, quit Global Gaming after working for Pandeya for three weeks, citing questions about Pandeya's character and the financial health of Global Gaming, Pandeya has said numerous times that the money for the acquisition was in place. He also has said that he received an informal $10 million bid for the company, via Rosso, from John Fanning, a co-founder of Napster. Both Rosso and Fanning denied it.

•  Sweden's Economic Crimes Bureau has launched an investigation to see whether the whole acquisition hoopla wasn't part of a plan to boost the stock price, according to Swedish newspapers.

Pandeya told CNET over the past three days that he has the money to complete the purchase of The Pirate Bay and that he has done nothing wrong. He claims that he and Global Gaming are victims of a conspiracy led by Rosso and Johan Sellstrom, Global Gaming's former chief financial officer who has claimed Pandeya and Global Gaming owe him money.

As for the company's ability to launch on time, Pandeya acknowledged that there are a few glitches.

"I do not know of any project or merger or acquisition that everything ran according to an extraordinary detailed plan," Pandeya said in an e-mail to CNET on Friday. "We have done incredibly well despite a bunch of losers that are making a noise. Well, these losers can try what they want. Too bad it is not going to work."

Statement released Tuesday from The Pirate Bay.
We have, ourselves, full confidence that if all do their duty, if nothing is neglected, and if the best arrangements are made, as they are being made, we shall prove ourselves once more able to defend our Internets, to ride out the storm of war, and to outlive the menace of tyranny, if necessary for years, if necessary alone.

Even though large parts of Internets and many old and famous trackers have fallen or may fall into the grip of the (International Federation of the Phonographic Industry) and all the odious apparatus of MPAA rule, we shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the ef-nets and darknets, we shall fight with growing confidence and growing strength in the air, we shall defend our Internets, whatever the cost may be, we shall fight on the beaches, we shall fight on the baywords.org, we shall fight on the /. and on the digg, we shall fight in the courts; we shall never surrender, and if, which I do not for a moment believe, the Internets or a large part of it were subjugated and starving, then our Empire beyond the seas, armed and guarded by the Anon Fleet, would carry on the struggle, until, in Cerf's good time, the New World, with all its power and might, steps forth to the rescue and the liberation of the old.
Signed;

The Pirate Bay Crew - Now until needed.

Peter Sunde Kolmisoppi, a Pirate Bay co-founder who has long been the service's spokesman, reacted to the latest lawsuit filed by the movie industry in his typically defiant way.

Peter Sunde Kolmisoppi says if Global Gaming can't find the funding, it just won't get The Pirate Bay.

(Credit: Peter Sunde Kolmisoppi)

He called it "bull****."

On Tuesday, the Motion Picture Association of America filed legal papers in a Swedish court that alleged the three operators: Kolmisoppi, Fredrik Neij, and Gottfrid Svartholm Warg continue to help millions of people commit copyright infringement, even after being sentenced to jail and ordered to pay $3.6 million in damages. In their legal filing, the studios have asked authorities to stop the trio.

Also in the filing, the MPAA asserts that Reservella is just a front. Reservella is the company based in Seychelles, an island nation northeast of Madagascar, that The Pirate Bay founders say owns the site. The studios maintain Reservella is controlled by Neij, but Kolmisoppi denied this.

"Please ask (the MPAA) how they can know that since it's not true," Kolmisoppi said. "They're just saying it because they're upset that they have a faulty claim. They have essentially no idea on the ownership of the Bay."

Kolmisoppi has said in the past that the founders transferred ownership in 2006.

The question of The Pirate Bay's ownership has come up often in the past few weeks. The music industry's trade group has said that if a Pirate Bay sale is completed, it will try to seize any money that falls into the hands of the site's founders. And then there's Global Gaming Factory, a Swedish software firm, which announced plans last month to buy the service.

Hans Pandeya, Global Gaming's CEO, has said he wants to turn The Pirate Bay, a BitTorrent tracker most often used to locate unauthorized film copies, into a legal music operation.

But those plans appear to be on rocky ground. Two weeks ago, Pandeya hired Wayne Rosso, Grokster's former president, to help acquire content legally. On Tuesday, Rosso told CNET News that he had quit and that he had strong doubts about Pandeya's ability to raise enough money to acquire The Pirate Bay after talking to the CEO's investors.

Rosso said Pandeya may not have all the funding he needs. Pandeya denied there was any hold-up and said his company's investors and board will vote on whether to acquire The Pirate Bay sometime in August.

As for Global Gaming, Kolmisoppi said: "If (Pandeya) doesn't have the funding, it won't go through."

The film industry fired another legal broadside at RealNetworks and RealDVD.

Real's Facet DVD player

(Credit: Greg Sandoval/CNET Networks)

The Motion Picture Association of America has accused Real of misleading the court about the company's attempts to circumvent ARccOS and RipGuard and about whether the technologies are true copy-protection measures.

Real wrote in patent applications filed with the Patent and Trademark Office in 2007 and 2008 that the two software were indeed copy protections, despite arguing the opposite in court, the MPAA alleged in a document filed with the court on Wednesday. The patent applications were published by the patent office two weeks ago.

The MPAA has taken Real to court to try to stop the company from selling RealDVD, a software that enables users to copy DVDs to a hard drive, as well as Facet, a DVD player that can also create digital copies of DVDs and store them as well. U.S. District Judge Marilyn Patel is due soon to decide whether to continue banning sales of RealDVD until a full trial decides whether the technology violates copyright law.

A Real spokesperson was not immediately available for comment Thursday morning.

An important point of contention in the case is whether RealDVD circumvents copy protections placed on DVDs. If Patel decides it does, then Real is violating the Digital Millennium Copyright Act, which outlaws the circumvention of anti-piracy measures.

Real maintains it has a license with the DVD Copy Control Association, the group that oversees DVD security, to use the copy protections the studios place on DVDs, so there's no circumvention. As for ARccos and RipGuard, technologies that are not included under the DVD-CCA licensing, Real has argued throughout the court fight that these aren't security measures.

"Real and its witnesses have told the court that ARccOS and RipGuard are not copy protection technologies and that Real's engineers did not know how ARccOS and RipGuard worked," wrote MPAA lawyers in documents filed with U.S. District Court in San Francisco. "Yet Real simultaneously has told the PTO that RipGuard' and ArccOS are 'copy protection mechanisms' and then described specific techniques used by ARccOS and RipGuard."

The MPAA attorneys also said "Real has told the court, through witnesses and proposed findings, that ARccOS and RipGuard can only delay but cannot prevent a 'linear copy' of DVDs. But Real is insisting to the (patent office) that ARccOS and RipGuard can 'cause an archiving process to fail' or 'never complete'--exactly contrary to its representations to this court."

The studios asked Patel to consider the three patent applications before making her decision. While it's late to be entering evidence, the MPAA alleges that it has the right to do it because Real did not turn over the patent applications in discovery.

"Judicial notice is warranted here because the applications have been in Real's possession and control but unavailable to the studios," the MPAA said in its court filing, "(And) because the applications so directly contradict Real's contentions before this court."

The language in the patent applications does appear to contradict what Real's lawyers and witnesses have said in court.

Nonetheless, the motion filed by the MPAA may be overkill. Real's story about ARccos and RipGuard was already the weakest part of its case. Real has alleged that the two software types were ineffective in securing DVD content, yet the MPAA produced documents that show Real's attempt to crack them failed. The company then tried to hire an outside firm, which the MPAA alleges is a group of Ukrainian hackers, and they couldn't do it either.

The MPAA said that Real's patent applications are U.S.Patent Application Publication No. US 2009/0148125 A1 (Watson, Bielman, and Barrett); U.S. Provisional App. No. 61/095,249 (Chasen, Buzzard, et al.); and U.S. Provisional App. No. 61/012,500 (Barrett, Hamilton, et al.).

The future of RealDVD, and possibly a consumer's right to create backup copies of their DVDs, now rests in the hands of Marilyn Hall Patel.

Bart Williams, the attorney who helped lead the MPAA's case.

(Credit: Munger, Tolles & Olson)

On Thursday, the U.S. district judge wrapped up a preliminary injunction hearing in the RealDVD case. Last fall, RealNetworks began selling RealDVD, the software that duplicates DVDs and stores copies to a hard drive. The Motion Picture Association of America, the trade group representing the six largest film studios, filed a lawsuit claiming RealDVD violated copyright law.

In September, Patel placed a temporary restraining order on sales of RealDVD, saying she had serious questions about the software's potential to be used to pirate films. Now, she must decide whether to continue to keep the software off shelves. Even if she does, a final decision about whether RealDVD is legal or not would be decided later by a jury (Here are the reasons I think Patel will rule against Real).

Patel's ruling on the injunction will have serious consequences on the case. Real CEO Rob Glaser testified during the hearing that delaying sales of RealDVD and Facet, the DVD player from Real that copies as well as plays DVDs, could be disastrous for the development of the products. Glaser told Patel that it's very expensive to keep engineering teams together. The company has already spent nearly $6 million, mostly on legal fees, developing the products.

He also noted that it would put Real behind in offering the public a means to backup their DVDs. The studios already offer digital copies of films that they tuck into purchases of DVDs, although consumers must pay extra.

Patel must now determine whether the studios have demonstrated a probability to win in a trial based on the merits of its arguments and has proven the possibility it could suffer irreparable harm. The injunction hearing acts as a preview of the trial. It is possible, however, for one side to lose in the hearing and win the overall trial.

If Real loses, the company can appeal Patel's decision to the U.S Court of Appeals for the Ninth Circuit. That's what the original Napster did when Patel sided with the recording industry in 2000 and placed an injunction on the peer-to-peer service. In that case, the appeals court agreed with Patel and ruled against Napster.

Besides the possible impact to Real's business model, the case could, if Real wins, set a landmark decision that could free consumers to copy their DVDs. Real has said it believes consumers have a fair-use right to backup their movie discs. A Real victory would also enable technology companies to create new DVD copying and storage devices.

Here's what is at stake, according to two well-known attorneys with opposing views:

On the issue of fair use, Fred von Lohmann of the Electronic Frontier Foundation said:

"The important question is will consumers have the same kind of personal use rights that they have had for their compact discs? Will we have the same kind of innovation for DVDs that we've seen for digital music? Obviously, consumers have gotten used to the idea of putting music on computers and listening to it on devices like iPods. Consumers are now facing the possibility that those same kind of actions will be declared illegal if the MPAA has its way."

Ben Sheffner is a former copyright attorney for 20th Century Fox and is an outspoken proponent of copyright. According to him, a loss in this case could deal Hollywood a significant financial setback. He said:

"The studios feel that it's very important to make clear that copying DVDs is not permitted by the law. They believe that's the law now--and judging from how things went at the hearing--it appears that is how the law will remain. If it goes against the studios that would be a major blow and would open up the door to a lot more copying of DVDs and to more products that would facilitate copying. A victory won't really improve their situation but a loss would be very bad."

The good news about all this is that we may not have to wait too long for a ruling. Patel has a reputation for delivering relatively speedy decisions.

Reporter's notes: Real has hired some very able attorneys from the firm Wilson Sonsini to represent it. But should it go to trial, Real would do well to hire a lawyer with the same kind of charisma and courtroom presence as Bart Williams. He's the lawyer from Munger, Tolles & Olson who is representing the MPAA. I'm no legal expert, but I've got eyes and the judge appeared to be more engaged when Williams addressed her. He didn't drone on. He was well prepared and he simplified complex issues and technologies. Cases are supposed to be judged on facts but I'm guessing every advantage helps.

Updates are noted at the bottom of this story.

Will RealNetworks CEO Rob Glaser see his company begin selling RealDVD again?

(Credit: RealNetworks)

SAN FRANCISCO--Attorneys for the Motion Picture Association of America attacked fair use during a hearing in the RealDVD case here on Thursday, claiming it is not a defense for violating the Digital Millennium Copyright Act. To prove its point, the MPAA relied on RealNetworks' own testimony in a prior case.

U.S. District Judge Marilyn Patel is due to decide whether Real can once again start selling RealDVD, the software enables users to duplicate DVDs and store copies on their computers. The MPAA filed suit last September and accused Real of violating copyright law and breach of contract. Patel temporarily banned sales until hearing from both sides.

The case potentially could go a long way to determining whether it's lawful for a consumer to make backup copies of their DVDs and is being closely watched by fair use proponents.

Patel raised a crucial question during the MPAA's closing arguments. She asked Bart Williams, one of the MPAA's attorneys, whether a consumer possesses the right to copy a DVD he or she purchased for personal use.

"Not for the purposes under the DMCA," Williams said. "One copy is a violation of the DMCA."

Then Patel tried again. This time she asked about a hypothetical device that sounded very much like Facet, the DVD player that Real is planning to release that copies as well as plays DVDs. Real says that the copies of movies made by Facet are locked in the box and can not be distributed illegally.

"What if Real or someone made a device that allowed for making a copy only to the hard drive that is on that machine?" Patel asked Williams. "And you can't make another copy from that. Would that be circumvention of the DMCA? Would it in fact mean that it really was sufficient fair use under the DMCA?"

"Yes it would be circumvention," Williams replied, "and no it would not be fair use. The only backup copy Congress envisioned was archival, that you would never use until such time when your main computer wasn't working...Congress would not have gone through the process or have this process if you're going to say there is some fair use rights that allows you to circumvent."

Real once argued against fair use
Williams then told the judge that Real had argued against fair use in a legal case the company brought against Streambox nearly 10 years ago. Real filed suit against Streambox for creating the Streambox VCR, a system that enabled users to copy Real's streaming music and video. Streambox argued that users were making fair use copies. Real sought a temporary restraining order, just as the studios have in the current case, which was granted.

"There is no fair use defense (for Streambox against the DMCA)," Real argued in that case, court documents show. "The DMCA does not have a fair use exception allowing individuals to circumvent access and copy protection measures.

"In enacting the DMCA," Real continued, "(Congress) expressly outlawed products such as the (Streambox VCR) that serve to promote the unauthorized copying and distribution of copyrighted works."

For this reason, Williams asked the judge for an estoppel ruling against Real. This is a legal doctrine that would bar Real from arguing for fair use because it had made a counter argument--and prevailed--in a prior case.

Real is vulnerable to DMCA violation claims. The copyright law prohibits anyone from cracking copy protections.

Even if Patel rules that Real did not circumvent Content Scramble System, the studios encryption technology, which the MPAA claims it has, Real has to prove that it did not circumvent ARccOS and RipGuard. These are copy protections measures some of the studios use as an added layer of protection and are not covered in the CSS license Real obtained from the studios.

In previous court proceedings, MPAA lawyers presented e-mails and testimony that showed Real worked hard to find a way to get past ARccOS and RipGuard, including the hiring of an overseas company that the MPAA alleges is run by "Ukranian hackers."

Williams wrapped up and then it was Real's turn.

Case is about stifling competition
Don Scott, one of Real's attorneys told Patel that security wasn't an issue in the case because the copy protection, AES-128, that Real uses to protect the copies RealDVD makes is better than CSS. He said the case was really about the studios' attempt to stifle competition.

He said Real needs to make a copy to the hard drive in order for consumers to enjoy the many features that RealDVD and Facet offer.

As for the studios' claims that RealDVD and Facet can be used to copy rented or borrowed films without compensating the studios, Scott said Real could block copying of rentals if the studios cooperated by including some kind of identifying marks or "serial number" on the discs, but Hollywood has refused.

As for fair use, Scott said the MPAA was wrong.

"We believe the buyer has that right to play a DVD as many times as they want," Scott told Patel. "We think he also has the right to make a copy, this fair use copy."

Scott compared DVDs to music and pointed out that the music industry allows users to make copies. "This is the experience that has been recognized as lawful fair use," Scott said. "These same studios have talked about CDs. A purchased CD can be copied to a computer and then transferred to an iPod without any charge to the consumer."

Before breaking for lunch, Patel wanted to discuss Real's request to hear testimony from Peter Biddle, a former Microsoft employee who helped draft the CSS license and who came forward on Wednesday evening, after the court had finished hearing witness testimony.

Real told Patel that they were unable to find Biddle, who if allowed to testify would contradict the studios claim that the CSS license was intended to always forbid the copying of DVDs.

Patel denied Real's request. "Your inability to find him I find inexplicable," she told Real's lawyers. "I found him on Google in three minutes. I don't buy it."

Both sides completed their closing arguments and the hearing adjourned without any decision from Patel. There is no telling how long she will take to issue a ruling.

Update 12:50 p.m. PDT: To include more on MPAA's request that Real be barred from arguing for fair use.

Update 1:20 p.m. PDT: To include Real's arguments about fair use.

Update 3:11 p.m. PDT: To include Patel's denial of a request to hear testimony from Peter Biddle.

RealNetworks, the company behind the Real media player and Rhapsody music service, could this week become the latest courtroom conquest of the entertainment industry's fierce efforts to protect copyrights.

On Thursday, U.S. District Judge Marilyn Patel is expected to hear closing arguments in proceedings that will determine whether to remove a ban on the sale of RealDVD. The $30 software enables users to create and store copies of DVDs to their computer hard drives.

The Motion Picture Association of America (MPAA), the trade group representing the six largest film studios, filed suit last September to stop the sale of RealDVD and accused Real of copyright infringement and breach of contract. RealDVD and Facet, a proposed DVD player that can copy and store films, would hand users the ability to copy rented discs without paying a cent for them. The practice is known as "rent, rip, and return."

Real attorneys argued in court that the company operated within the law and that consumers have the legal right to backup copies of their media. Hollywood disagrees. "Fair use" proponents have kept a close eye on the case because a favorable decision for Real might bolster consumer rights.

But they're likely to be disappointed. Four days of testimony in a San Francisco federal court showed Real's case is trudging on very shaky legal ground. In addition to offering little evidence that it did not violate the Digital Millennium Copyright Act, Real's arguments that it obtained a license to use the studio's encryption technology and therefore owned the right to copy DVDs appeared to be overwhelmed by the MPAA's evidence to the contrary.

What might be most important about this case, a courtroom victory for the MPAA could put the kibosh on Facet, the device Real hopes is representative of the next-generation DVD player. Facet, which relies on the RealDVD software to make copies, can store up to 70 movies and would retail for about $300. In court, Real CEO Rob Glaser demonstrated the device and it hops between movies and television shows as easy as an iPod flips between songs.

Facet provides the kind of functionality that consumers want and could help rejuvenate slumping DVD sales, some observers say. The device, however, may never be sold in your local Best Buy for five reasons:

The rear view of Facet, a DVD-copying disc player that Hollywood says would cost it millions in pirated movies.

(Credit: Greg Sandoval/CNET Networks)

Not licensed to copy DVDs: In court, Real argued that the MPAA's breach of contract claims are baseless because the DVD Copy Protection Association, a group that includes film studios and DVD makers created to protect discs from piracy, issued it a license to use the organization's DVD Content Scramble System (CSS). This is the studio's encryption technology designed to prevent piracy.

When RealDVD copies movies, it never cracks the encryption, according to experts called to testify by Real. The MPAA's witnesses argued that the CSS license gives Real permission only to playback DVDs, not to copy them. Marsha King, a retired vice president at Warner Bros., testified that the whole purpose of the DVD-CCA licensing was to prevent consumer copying. "The studios were adamant that no copy be placed on the (computer) hard drive," she told the court.

Cracking ARccOS and RipGuard violates DMCA: Perhaps the weakest area of Real's defense is the circumvention of ARccOS (Advanced Regional Copy Control Operating Solution) and RipGuard.

The MPAA says these are anticopying technologies used by some of the major film studios as another layer of piracy protection in addition to CSS. They're not included in the CSS license. This means that even if the CSS license gave Real permission to copy, it wouldn't protect Real's cracking of ARccOS and RipGuard. Circumvention of copy protections violates the DMCA.

Real denied ARccOS or RipGuard are copy-protection measures. Douglas Dixon, one of Real's technology experts, testified both technologies are ineffective. This was one of the reasons the studios rarely used them, he said.

To illustrate his point, Dixon said Sony Pictures used ARccOS or RipGuard on just four film titles last year. Real's argument was this: if a copy protection isn't effective then it isn't really protecting anything and is not covered by the DMCA.

The irony is that Arccos and RipGuard were effective enough to foil Real's months-long attempt to crack them--starting in 2007--court documents showed. The copy protections even stumped Rocket Division, a company hired by Real to decrypt ArccOS and RipGuard, and a group the MPAA calls a "Ukranian hackers."

"Been...fighting with it for two weeks and no big success yet," wrote one of Rocket Division's managers in an e-mail to a Real executive. "With Arccoss the task appeared to be a little bit -- a little harder than we thought."

The studios told Patel that Real's argument that a copy protection needs to be impossible to break for it to be covered by the DMCA isn't logical. Why would unbreakable encryption need a law banning circumvention? The DMCA's anti-circumvention provisions are designed to cover all copy protections, MPAA lawyers said.

Studios could lose millions: Claims by the MPAA that RealDVD could cause significant financial harm were less convincing when the case was just about the software. With scores of similar products that cost nothing and were readily available online, why would anyone pay $30 for technology that were restricted by copy controls? RealDVD allows a user to watch a copied movie on five individual devices while copies made from software such as HandBrake are free of such limitations.

Then, Real's efforts to develop Facet surfaced and that changed the picture.

RealDVD was only one part of Real's DVD-copying strategy. The prize for Real was selling a box that copied and stored movies. Glaser acknowledged during the hearing that Facet offers no protection against piracy other than presenting a notice urging users not to copy movies they don't own.

Judge appears skeptical: Judge Patel has indicated several times that she isn't buying Real's story.

After Glaser outlined his company's attempts to stop Facet users from pirating films with little more than strong language, Patel hurumphed "Do you think this will be more effective than 'Just Say No?" This was a reference to the anti-drug campaign launched by the Reagan administration that was derided by critics for being naive and ineffective.

Last fall, when Patel halted sales of RealDVD, she told lawyers from both sides that she had questions about whether the software could enable mass copyright infringement. During opening arguments in the injunction hearing, one of Real's lawyers suggested that the company was in the right because it helped consumers backup their films.

"It's even more attractive to consumers to get everything for free," Patel said, in a seemingly sarcastic remark.

Real is grasping at legal straws: By accusing the studios of antitrust violations late in the process, Real is signaling that the company is less than confidant in it's case. In what appears to be a "Hail Mary" legal maneuver, Real claimed last week in a court filing that the studios are a cartel and that the CSS licensing agreement is proof they are guilty of boycotting Real.

This is a little late for Real to be raising these issues. The company could have made the claims at any time since September. Neither the CSS license, nor the studios relationship to it, is new.

Regardless of where Real's claims go, antitrust cases take years to litigate and will be unlikely to help RealDVD or Facet reach the market any time soon.

RealNetworks has accused the major film studios of antitrust violations in documents filed Wednesday with a federal court.

RealNetworks CEO Rob Glaser

(Credit: RealNetworks)

Real, a software company known best for the company's video and music player, has asked U.S. District Judge Marilyn Patel for permission to file an amended second complaint against the six largest film studios as well as Viacom, the entertainment conglomerate and parent company of Parmount Pictures.

Real has been involved in a legal conflict with Hollywood over its release last year of RealDVD, a software that duplicates DVDs and stores the copies on a computer hard drive. The Motion Picture Association of America claims that RealDVD violates copyright law. The two sides have met in court this month so Patel could determine whether to remove an injunction placed on the sale of RealDVD. She halted sales last September, days after the software first went on sale.

An MPAA representative was not immediately available and a Real spokesman declined to comment.

In the latest filing, Real accuses the studios as well as the DVD Copy Control Association, a group dedicated to protecting DVDs from piracy, of violating the Sherman Antitrust Act, the federal statute designed to limit cartels and monopolies.

"RealNetworks has become aware of facts demonstrating that the DVD CCA and the Studio Defendants have engaged in both a horizontal group boycott of RealNetworks," Real said in it's filing. "The testimony of the Studio Defendants during the preliminary injunction hearing further confirmed the existence of a horizontal conspiracy."

Real alleged in the document that the studios were guilty of anti-competitive practices when they agreed to block anyone from making copies of DVDs without their say so.

"(The witnesses) unambiguously," Real said in the court filing,"confirmed the Studios' position that the (Content Scrambling System) License Agreement (which is needed to legally make copies of DVDs) resulted from a joint agreement among the Studios to prohibit all copies of DVD content unless the Studios jointly authorize the making of such a copy."

More to come

The job ad RealNetworks posted last week for a Facet engineer.

(Credit: Craigslist.com)

RealNetworks continues to hire engineers to work on Facet, a DVD player that copies and stores film discs despite allegations by Hollywood that the device violates copyright.

Real has posted a job ad on Craigslist asking for qualified Linux engineers to apply.

"The Facet team is creating a rich set of consumer media experiences that will make the consumer electronics industry stand up and take notice," Real said in the job posting, first reported by Video Business Online.

But studio executives have already taken notice and they haven't liked what they see. Real's hopes of offering consumers a means to backup their movies face a serious legal challenge from the Motion Picture Association of America, the trade group for the six largest film studios.

The Facet DVD Player by Realnetworks.

(Credit: Greg Sandoval/CNET Networks)

The MPAA filed a lawsuit last fall and a U.S. District judge blocked further sales of RealDVD, a software that enables users to copy DVDs and store the duplicates on a computer hard drive. RealDVD is really the spearhead in Real's DVD-copying strategy. The MPAA alleges that RealDVD violates copyright law. Hollywood says the $30 software and Facet, a DVD player that can copy and store about 70 films, are nothing more than pirating tools.

On May 21, attorneys for Real and the MPAA will make their closing arguments for a hearing on whether the injunction on RealDVD sales should be lifted. By continuing to develop Facet amid a potentially technology-killing court fight, is Real being overconfident? After all, the public company has spent the majority of RealDVD's $6 million development costs on litigation.

"If the court keeps the injunction in place we will not bring Facet to market as it exists today," said Bill Hankes, a Real spokesman. "Nobody should infer too much from the job posting."

An MPAA spokeswoman declined comment.